Friday, July 2, 2010

First Solar: Vielen Dank für die Zuschüsse (Thanks for the subsidies) FSLR

I use the German (although I'm not sure of my schoolboy translation, there are at least three words for subsidy in the language of love.) because, as I said regarding the half-billion dollars that former FSLR CEO Ahern pulled out of the stock:
...he should get down on his knees every morning to thank Gott for those German hausfraus who pay the solar feed-in tariff.
From Forbes:
With the spewing BP rig in the Gulf of Mexico giving fossil fuel extraction a bad name, and the Obama Administration slowly but surely working its way through major legislation – healthcare, check; financial regulation, check – toward an energy policy that will seek to curb carbon emissions, it seems like a great time to be First Solar (FSLR).

Even in a global recession, revenue and profits have kept rising. Margins are fat. The stock, which swooned from a feverish high of about $317 in early 2008 to about $85 late that year, is trading at an all-time low as a multiple of earnings, a little less than 16 times trailing twelve months profit.
Is this a bargain for one of the biggest players in the global alternative energy sector?
The company, based in Tempe, Ariz., (the Walton family of Wal-Mart fame holds a controlling stake) has some impressive fundamentals. It keeps building new factories to make solar panels, runs them 24/7, and sells all it can make.

Its solar panels, using so-called thin film semiconductor technology, are relatively efficient at turning sunshine into electricity, so First Solar’s profit margins are fat: net income last year of $640.1 million, or $7.53 a diluted share, on revenue of $2.1 billion. That’s pricing power, especially amid a global downturn.
Big profits, even with lots of capital spending to build factories, have built a strong balance sheet. Lots of cash.
So, what’s not to like? Just one thing, really, and it’s even more fundamental than the company’s fabulous financials: First Solar’s success, and the success of much of the alternative energy sector, rests on government subsidies and tax breaks, foreign and domestic. To like the stock long-term, we’d have to be convinced that governments will keep subsidizing. Or, that solar panels will somehow become price-competitive without subsidies; that seems a long way off. First Solar uses the word eventually in discussing an economically sustainable market for its panels.

Malaysia gave First Solar a 16.5-year tax holiday, and so the company built much of its manufacturing there, and the company paid just $46.2 million in income tax last year. Germany has been an aggressive subsidizer of solar power, so Germany accounted for 65% of First Solar’s sales last year. The U.S. government has been generous, too, with a 30% investment tax credit for solar installations. And the Obama Administration, as part of its economic stimulus, offered cash grants during 2009-2010 in lieu of the credits....MORE, including some simple charts, our favorite kind.